Opinion and Economic Analysis

Hicks: Subsidizing filmmaking is a losing proposition

June 14, 2014

If you are fortunate enough to share the same household as an excogitative, romantic teenager, you are aware that John Green’s novel “The Fault in our Stars” is now a very popular movie. I am thusly blessed, but decided to skip the movie this weekend. I doubt any movie can match the wondrous beauty of Green’s prose, and I am sidetracked thinking about the economic development issues surrounding the movie.

Green’s novel takes place in Indianapolis, but the movie was made in Pittsburgh. Parts of the city were transformed into Indy landscapes at great costs and the stars wore Pacers and Butler Bulldog shirts. The economic policy consideration centers on why the movie was not made in Indiana.

The movie industry in the United States is heavily subsidized by state and local governments. Indiana does not have a movie-specific tax incentive, but Pennsylvania does. In fact, nationwide, annual payments to the movie industry probably number in the several billion dollars, with movie-specific tax credits coming close to $2 billion. This raises the types of serious questions that rarely make it into the tax incentive debate.

Having artists and artistic activity in our midst is an important part of a vibrant regional economy. As we become a more affluent nation, we spend more of our income on such things and choose where we live partly based on the abundance of such offerings. Regions without serious cultural attractions will be left behind, but that is not sufficient argument for instituting tax incentives.

Much economic activity can be motivated to relocate through government subsidies.

Movies are especially footloose activities for which tax abatement or direct subsidy will often make the difference between filming locations. Advocates of these types of subsidies make the same mistake many economic developers are inclined to. They focus too much on simply getting the deal, and too little on whether the entirety of the deal is good for the region.

Without even touching upon the fairness of Indiana taxpayers subsidizing Hollywood studios, film tax credits are of dubious value. The jobs they generate are transient, often low-paying and unlikely to meet the simplest benefit-cost calculus. The best argument is that the movie might highlight the region, and that is a costly argument.

We should be open to a broader discussion on film tax credits, but we must ask some tough questions. If we don’t, Hoosiers risk being swindled and the fault will be not in our stars, but in ourselves.•

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Hicks is director of the Center for Business and Economic Research and a professor of economics at Ball State University. His column appears weekly. He can be reached at cber@bsu.edu.

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